OUTLOOK

Cities reimagined: Crucibles for innovation

What can municipal governments do to foster the innovation that digital startups offer?

INTRODUCTION

From the Aztec capital of Tenochtitlan to Chang’an in ancient China, from the city-states of Renaissance Italy to Alexandria, Baghdad, London and New York, the world’s great urban centers have always been crucibles for change and engines of innovation.

And the phenomenon is no less vital today as young, digital, high-growth businesses have become increasingly critical to the economic success of the cities they choose to locate in.

Vibrant startup ecosystems are important not only for growth and jobs but also for a city government’s ability to solve local problems and run itself well. For a number of cities embracing this growing sector of their economies, a positive feedback loop exists between innovation and entrepreneurship outside city hall and good governance—including both policy and delivery—within it.

Once relatively closed and insular environments, leading municipal governments around the world are now looking to engage with outside ideas and innovators to support their growth, improve city services and create new solutions to complex problems—revolutionizing the way the city works and engages with citizens.

However, this kind of transformative change is often difficult. Traditional policy-making approaches, characterized by inertia, process complexity and bureaucracy, can make keeping pace with a rapidly shifting technology environment difficult. City governments also often lack the direct policy-making power and budgets to bring about change in areas most important to entrepreneurs, such as access to talent, capital and attractive standards of living.

PLAYBOOK FOR INNOVATION

Given this backdrop, how can cities best employ the levers at their disposal to create a fertile environment for innovation and entrepreneurship and capitalize on the benefits a dynamic startup ecosystem can bring?

To help city governments find answers, Accenture, working with UK innovation foundation Nesta and the Future Cities Catapult, developed CITIE (City Initiatives for Technology, Innovation and Entrepreneurship), a global benchmarking study. CITIE found that cities can make a difference by integrating the interests of technology-oriented startups into how they—the city governments—make and implement policy in nine areas, or “roles” (see chart). In the main, they are roles that cities play every day—from City as Regulator to City as Investor and City as Advocate. Taking the right initiative in each area can foster and build the kind of openness, infrastructure and city hall leadership that embrace innovation and entrepreneurship.

CITY AS CUSTOMER: INNOVATING THROUGH PROCUREMENT

City governments are big customers, spending an estimated $4.5 trillion globally each year on goods and services. However, historically it has been difficult for young firms to win business from public bodies like cities. Legacy processes, a preference for large integrated contracts, and an aversion to working with unproven ideas or suppliers have all created barriers to new players accessing this market.

But well-run, forward-looking cities recognize the value of acting as consumers of innovation. Opening up procurement to new businesses can simultaneously bring more effective solutions for cities and provide entrepreneurs with a test bed to validate their products and services.

For instance, Barcelona is redefining the ways it procures goods and services, acting as a “first customer” for new ideas. One example is the city’s Urban Lab, which makes public spaces available as testing grounds for new products and services. The city’s Office for Economic Growth estimates that 90 percent of the 16 pilot projects the Urban Lab has supported so far have gone on to develop a business based on their pilot.

In 2012, exemplifying the success of this approach, technology company Bitcarrier piloted a network of traffic sensors that helped Barcelona improve traffic flow in the city. Acquired two years later by Worldsensing for an undisclosed sum, Bitcarrier is now a world leader in providing real-time traffic information, with its technology in use along more than 1,500 kilometers of highway in southern Europe, and its solutions being provided to cities around the world, including Buenos Aires and Sydney.

CITY AS HOST: CURATING A THRIVING STARTUP ECOSYSTEM

For startups, the serendipitous encounters, interactions and relationships that are at the heart of thriving urban environments are essential. Cities are ideally positioned to attract the critical mass of potential collaborators, customers, advisors, employees and investors that entrepreneurs and their businesses require to succeed.

However, these networks often require a facilitator to reach their full potential. Assuming the role of City as Host, Toronto works to bring multiple parties together as part of the city’s ongoing efforts to maintain its thriving innovation ecosystem. Toronto collaboratively identifies industries that matter to the local economy and have the potential to boost the city’s competitiveness. Working with partners, it then creates the necessary support services to accelerate the development of businesses.

This process has resulted in the creation of a strong network of 50 business incubators that focus on everything from launching high-tech startups to prototyping restaurant concepts in shipping containers, helping local small businesses and startups bring their ideas to life. Toronto has been supporting incubation for 25 years. A good example of its success is the Digital Media Zone at Ryerson University. One of the city’s largest incubators, it has supported more than 130 startups in the five years since it opened, raising in excess of $40 million in funding and creating more than 1,200 jobs.

CITY AS STRATEGIST: EMBRACING INNOVATION INSIDE CITY GOVERNMENT

Only a few cities have comprehensive strategies to support innovation and entrepreneurship. While it’s possible to develop sound policies on an ad hoc basis, sustaining them in a typically complex, politically charged city environment usually requires something more: an established strategy that articulates how activities across city hall are coordinated, and who is accountable for that effort. The need to succeed in the role of City as Strategist is also compelling cities to establish innovation teams that pioneer new ways of working.

Boston is a leading example of a city embracing innovation. In 2010, the city created the Mayor’s Office of New Urban Mechanics (MONUM), which aims to accelerate the pace of innovation within the municipal government itself. The unit’s small team facilitates and strengthens connections between entrepreneurs and government. Using a rapid prototyping methodology, conducting experiments, understanding their impact, scaling what works and learning from what doesn’t, Boston is improving the way the city functions and connects with citizens.

For example, MONUM’s Citizen Connect mobile app is used by residents to report problems such as graffiti to City Hall; around 300 cases across Boston are reported each week. The app has been replicated by other cities across the United States—as has the MONUM brand, which is now found in Philadelphia and Utah Valley.

ACT LIKE A STARTUP

Our analysis of more than 40 cities worldwide has revealed many shareable lessons. The main success factor is a city’s ability to reduce the distinction between innovation policy design and delivery.

In other words, when dealing with startups, these cities tend to act like startups. They experiment to understand what works, they learn from failure, and they capitalize on successes quickly. In some cases, this approach may require the introduction of a new breed of public official who is comfortable taking new risks and working hand in hand with the entrepreneurial ecosystem.

For cities just beginning this journey, we have outlined a few suggestions.

Signal commitment. Explicitly commit to establishing innovation leadership positions and have the strategies and teams in place for coordinating policy across departments and agencies. Cities that create effective positions for promoting and supporting innovation invest them with real problem-solving capabilities as well as the resources they need to effect change. This sends a clear message to the entrepreneurial community that the city government is serious about boosting innovation-driven growth.

Embrace new design techniques. Mimic the approaches entrepreneurs take by employing prototyping, design methods and digital techniques to craft policy. City policy labs that adopt the methods and practices of high-performing startups can dramatically outperform other more conventional approaches to seeding growth and solving problems, but they require new thinking to succeed, including the freedom to fail.

Be comprehensive. Treat the full range of city operations and influence as mutually supportive drivers of success, capable of being used to improve the innovation and entrepreneurship environment. This extends into core municipal functions—such as regulation and procurement—that are traditionally less associated with innovation and entrepreneurship, and may be difficult to get right.

Be open by default. Cultivate habitual open exchange with the local entrepreneurial community. Let entrepreneurs gain an understanding of the critical urban challenges they are well placed to solve. Simultaneously, enable city officials to understand the issues entrepreneurs face and design policy that reflects their needs. Encourage open standards, interoperability and meritocracy.

Use soft power. Apply softer approaches that involve influencing, convening and collaborating to effect change in areas where the city government has little direct power. For example: A city may not be able to mandate coding classes in schools, but it can help establish special tech-centered apprentice programs to match make local talent with expanding startups. Successful cities often act as bridge-makers, connecting startups with potential stakeholders. What’s more, facilitating connections among multiple parts of the entrepreneurial ecosystem does not require money or power; cities can accomplish it by effectively exploiting their central positions in this ecosystem.

CONCLUSION

From Boston to Barcelona, from Seoul to San Francisco, cities are embracing innovation and entrepreneurship as keys for unlocking new growth opportunities and solving complex city challenges. The secret to their success? A willingness to embrace a fundamentally new approach to governance.

ABOUT CITIE

CITIE (City Initiatives for Technology, Innovation and Entrepreneurship) is the product of a partnership between Nesta, Accenture and the Future Cities Catapult. It provides city policymakers with a playbook to help them develop the initiatives that catalyze innovation and entrepreneurship. It was created in consultation with national and city-level practitioners, entrepreneurs, investors and policy experts. During development of CITIE over 1,600 unique data points were collected and analyzed.

The full report, diagnostic tool, case studies and results for 2015 can be found at www.citie.org.

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